Chancellor Rachel Reeves announced the Labour government’s first Autumn Budget for 14 years on Wednesday 30 October.
The announcement in itself was a historic moment, as it was the first budget to be delivered by a female chancellor of the exchequer, and it comes hot on the heels of the announcement of the recent Employment Rights Bill, which will have a significant impact on the landscape of UK employment law.
The chancellor’s announcement contained wide-ranging tax increases and commitments to spending, a number of which will have an impact on employers. In this article, we highlight these changes and advise next steps for employers to remain compliant.
Arguably the biggest news in the budget was the announcement of an increase in employers' national insurance contributions. Employers currently pay 13.8% on worker’s earnings above £175 per week and this is set to increase to 15% per employee from April 2025. This had been touted as a likely increase prior to the budget being announced, but the bigger surprise came with the announcement that the threshold over which employer’s will pay these contributions will be lowered to £5,000 from the existing threshold of £9,100. This is expected to create an additional liability of £615 per employee, which employer’s will bear the burden of.
These changes will take effect from April 2024 and combined are estimated to generate an extra £20 billion per year.
Alongside the changes to national insurance, it was also announced by the chancellor that the national living wage will rise by 6.7%, which is likely to result in a rise in pay for more than 3 million workers. The increase means that the national living wage will increase from £11.44 to £12.21 for workers over the age of 21, which is estimated to be worth £1,400 to eligible full time workers.
The national minimum wage will also increase for 18-20 years olds from £8.60 to £10 an hour. This represents the largest ever increase for this age group and is expected to boost pay for full time workers in this age group by £2,500 next year.
Both of these changes will take effect from April 2025 and mark a first step towards aligning the national minimum wage and national living wage to create a single adult wage rate.
In positive news for smaller businesses, the employment allowance will be increased to £10,500 per year. The employment allowance offers small businesses relief on paying national insurance contributions, and the new threshold of £10,500 is more than double the existing £5,000.
This is likely to mean that around 865,000 employers will not pay national insurance contributions next year and will in particular help smaller businesses that may otherwise struggle with the other changes announced to national insurance and wages.
£240 million will be invested and aimed at encouraging people to get back into work, as the government attempts to tackle their growing benefits bill. The initiative, titled ‘Get Britain Working’, is intended to provide additional services across the UK that can offer work and health and skills support for individuals with disabilities and long term health issues. The pledge has been made by the chancellor after it was announced that the UK is the only of the G7 countries that has higher levels of economic inactivity now than it did prior to the coronavirus pandemic.
This new initiative will be implemented alongside corresponding reforms to the benefits system, including the withdrawal of the existing Employment and Support Allowance, and aims to properly support individuals in getting into work by breaking down the existing barriers they face.
The chancellor also announced that the government will not extend the previous government’s freeze on income tax and national insurance thresholds, which will last until the end of the 2027-2028 financial year. Once the freeze ends, thresholds will be increased in line with inflation from the 2029-2029 financial year.
There is some good news for employers however, following the announcement of a freeze on fuel duty, inclusive of the 5p cut per litre that has been in place since it was introduced by the Conservative government in March 2022. The freeze means that any businesses that have company vehicles will incur less cost in filling them with fuel.
The most notable pension related change was in relation to occupational pension schemes. It was announced that unused pension funds and death benefits that are payable from a pension will now be lumped in with a person’s estate for inheritance tax purposes from 6 April 2027. As it stands, most lump sum benefits are not subject to inheritance tax.
Although this change may not affect employer’s directly in terms of how they contribute to the pension scheme, the changes may have an impact on employee’s participation in the pension scheme or how the scheme is administered. Therefore, it’s important that employers are at least aware of the proposed changes.
Last week’s budget, coupled with the recent announcements contained in the Employment Rights Bill, should encourage employers to be proactive in undertaking a workforce audit and pay review. This includes exploring ways where savings could be made by reviewing benefit packages and ensuring salary sacrifice schemes are being properly utilised. This will also help them ensure they are in a position to be compliant with the new minimum and living wage rates being introduced from April 2025, and allow them to start thinking ahead about how to prepare for the introduction of a day one right to protection from unfair dismissal for all employees, which subject to consultation, is expected to take effect in 2026.
If you have any questions about the announcements made in the budget last week, or in the recent Employment Rights Bill, or want to know how these announcements may affect your business, please contact Ashfords’ employment team to find out how we can assist.
